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Resale Values Up, But Market Remains Fragile

Resale values for mid-size sedans are substantially higher than in 2008, as are prices for light-duty trucks and SUVs. Contributing to this rebound is a decrease in wholesale inventory, low fuel prices, and strong retail used-vehicle sales.

April 2009, by Mike Antich & Lauren Fletcher

To view a PDF of the complete article, including charts, click here.

Wholesale used-vehicle prices during fourth quarter 2008 were the worst on record. Since then, wholesale prices rose significantly in January and February. The improvement in wholesale pricing in 1Q 2009 reflects better-than-expected retail sales of used vehicles.

The decline in new-vehicle sales has decreased the volume of trade-in vehicles below retail demand for used vehicles. As a result, dealers are being forced to increase auction purchases of used vehicles to compensate for the lack of trade-ins.

"The overall wholesale market is very strong. This is driven by a lower supply of used vehicles at auction, the increase of dealers attending auctions due to depressed new-vehicle sales, and the shortage of quality trade-ins," said Paul Seger, vice president, asset remarketing for GE Capital Solutions Fleet Services. "However, late-model vehicles over $10,000 continue to be a challenge."

Increasingly, retail dealers are looking at used vehicles as an alternative to new-vehicle sales, which have been abysmal. This has had a beneficial effect on the resale values of used fleet vehicles.

"Since December 2008, we have seen a steady increase in prices for quality fleet vehicles. Prices have increased 5 to 10 percent depending on the type of vehicle, with typical sedans increasing over 8 percent. Trucks and SUVs are experiencing increases over 10 percent, especially for pickup trucks, as supply and the lower gas prices have boosted their price increases. Dealers, both independent and franchise, are looking at used vehicles as a retail alternative as consumers are controlling their spending," said Darrin Aiken, assistant vice-president of vehicle remarketing for Wheels Inc.

Another factor contributing to higher resale values has been the return to a degree of stability in the wholesale market since the start of the 2009 calendar-year.

"Current market conditions are stable in comparison to November/December 2008. It appears we are currently in a seller's market. However, the market is still down year-over-year. The seller's market is truly a reflection of three factors: vehicle values over-correcting in 2008 (especially large SUVs and light-duty trucks), the spring tax market, and a supply shortage," said Les Lynott, manager vehicle remarketing for Emkay, Inc.

This assessment is seconded by Bill Cieslak, vice president, vehicle operations for PHH Arval.

"The current wholesale market for commercial fleet vehicles is generally better than third and fourth quarter 2008; however, market conditions vary by asset type. Mid-size sedans are selling briskly at prices substantially higher than where they ended in 2008. The supply and demand ratio for sedans has improved of late, and the tax refund season is supporting increased retail sales volume," said Cieslak.

However, resale values for used fleet trucks continue to have varied results. "Newer, lower-mileage, higher-valued trucks have enjoyed substantially higher prices when compared to Q4 2008. In many cases, values have increased by several thousand dollars," said Cieslak. "Conversely, an oversupply of older commercial work trucks has not produced the same price lift. Continued challenges in the construction, remodeling, and contractor industries have not produced an increase in the demand for these types of trucks."

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